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Taxes: 5 Facts Every Baby Boomer Should Know

Baby Boomers are those born between 1946 and 1964, currently aged between about 52 and 70. They're approaching retirement or have already entered it, and there are a bunch of tax-related things they would do well to know, as some could save them a lot of money. Read on, for five tax facts every Baby Boomer should know.

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It's not too late to save big with retirement saving plans

If you're already in retirement, this tip will help you less than those Boomers still working. Imagine you're a young 52-year-old, though, still working and saving for retirement. If you're not saving in a Roth IRA (or a Roth 401(k) at work, if one is available to you), you're probably paying Uncle Sam more than you need to. Roth accounts accept post-tax money and let you withdraw funds tax-free in retirement. If you're planning to retire at 62 or 67, then you have 10 or 15 more years of saving and investing ahead of you. If you can make the maximum annual contribution (currently $6,500 for those 50 or older and $5,500 for younger folks) each year and it grows by 8% annually, you'll end up with $101,700 after 10 years and $190,600 after 15 years. Those are hefty sums, and you may be able to avoid paying any taxes on them!

For starters, as mentioned above, you can contribute an extra $1,000 per year to your IRA if you're 50 or older. With 401(k) accounts, you can contribute an extra $6,000! (That's the catch-up contribution allowed for 2016, on top of the regular maximum of $18,000 for most folks, giving older workers a hefty cap of $24,000.) Meanwhile, those 65 or older get a biggerstandard deduction for their taxes. For 2016, a single filer has a $6,300 standard deduction up to age 64 and a $7,850 one beginning at age 65. This can cut your taxes. Medical deductions are also easier to take for those who are 65 or older (and their spouses) -- for 2016. Most people can only deduct the value of qualifying medical expenses that exceeds 10% of their adjusted gross income, but in 2016, older taxpayers can deduct whatever exceeds 7.5%.

minimum distributions" (RMDs). (Roth IRAs are RMD-free.) You can generally begin tapping any of these retirement accounts beginning at age 59 1/2, but once you turn 70 1/2, you must be making withdrawals of a certain minimum size. There are online calculators that can help you estimate how much you'll need to withdraw. The onefrom the Financial Industry Regulatory Agency (FINRA), for example, spits out an RMD of about $7,800 for a 72-year-old with a balance of $200,000 in the account. It's not uncommon for your IRA custodian (such as a brokerage), to do the math for you and you can often set things up so that checks of the correct size are automatically sent to you. Still, stay on top of the matter yourself, because the administrator might end up randomly selecting some stocks to sell from your account to generate the needed funds and you might prefer to decide which shares are sold. The amount you must withdraw is tiedto an IRS formula based on life expectancy, and the penalties for noncompliance are steep. If you forget to take an RMD, or don't withdraw the full amount, the IRS will seek 50% of the amount you didn't withdraw.

Avoid taking retirement-account money too early

In most cases, if you take money out of your IRA or 401(k) before you hit age 59 1/2, you'll likely regret it. That would be considered an early withdrawal, meaning that you'd be taxed on the withdrawal and you'd also face a 10% penalty charge. Double-check the rules of any account you're planning on drawing money from and know that there are some exceptions to this rule, such as if you're disabled and withdrawing early.

Know that your Social Security benefits may be taxed

It's easy to assume that your Social Security benefits are free from Uncle Sam's grasp, but that's not the case. In certain circumstances, they may be taxed. Here are the currentrules:

If your "combined income" (which includes your adjusted gross income, your tax-exempt interest, and half your Social Security benefits) is less than $25,000 for a single filer or $32,000 for a married-filing-jointly filer, your benefits won't be taxed.

If that income is between $25,000 and $34,000 for single filers or between $32,000 and $44,000 for joint filers, then you may be taxed on up to 50% of your benefits.

If your combined income tops $34,000 for single filers or $44,000 for joint filers, then you may be taxed on up to 85% of your benefits.

Getting old isn't always fun, but there are a few financial upsides to it. The more you learn about taxes and tax strategies, the more you'll likely save.

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